Correlation Between Direxion Daily and American Century

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and American Century at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Direxion Daily and American Century into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Direxion Daily NVDA and American Century Short, you can compare the effects of market volatilities on Direxion Daily and American Century and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Direxion Daily with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and American Century.

Diversification Opportunities for Direxion Daily and American Century

-0.45

Correlation Coefficient

Direxion Daily  American Century

Very good diversification

The 3 months correlation between Direxion and American is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily NVDA and American Century Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Short and Direxion Daily is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Direxion Daily NVDA are associated (or correlated) with American Century. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Century Short has no effect on the direction of Direxion Daily i.e., Direxion Daily and American Century go up and down completely randomly.

Pair Corralation between Direxion Daily and American Century

Given the investment horizon of 90 days Direxion Daily NVDA is expected to generate 43.4 times more return on investment than American Century. However, Direxion Daily is 43.4 times more volatile than American Century Short. It trades about 0.08 of its potential returns per unit of risk. American Century Short is currently generating about 0.06 per unit of risk. If you would invest  9,347  in Direxion Daily NVDA on August 30, 2024 and sell it today you would earn a total of  1,787  from holding Direxion Daily NVDA or generate 19.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Direxion Daily NVDA  vs.  American Century Short

Direxion Daily NVDA

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily NVDA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Century Short

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Century Short are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, American Century is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Direxion Daily and American Century

The main advantage of trading using opposite Direxion Daily and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, American Century can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in American Century will offset losses from the drop in American Century's long position.

The idea behind Direxion Daily NVDA and American Century Short pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.